UPL Ltd has registered strong volume growth and higher realisations in Q1FY23 that resulted in higher YoY growth of international business; India business grew only 8% YoY (due to delay in plantation). Gross and EBITDA margin were up 39bps and 51bps YoY, respectively due to better realizations, and Europe business faced some headwinds due to Russia-Ukraine conflict.

ICICI Securities notes the company launched multiple products during the quarter. Net working capital days increased during the quarter due to higher inventory and debtor days, but we expect them to normalise in next 1-2 quarters. It increases earnings estimates due to better than expected performance in Q1FY23. It models revenue and earnings CAGR of 12.7% and 22.7%, respectively, over FY22-FY24E with RoCE > cost of equity.

Q1FY23 performance: The company reported revenue and EBITDA growth of 27.1% and 30.1%, respectively, YoY. Net profit was up 50.3% YoY. Gross margin expanded 39bps YoY. EBITDA margin was up 51bps YoY due to lower staff costs as % of sales. During the quarter, volume growth was 6% and realisation led growth was 18% YoY. The company also benefitted from favourable forex fluctuations.

Strong growth in North and Latin America: UPL reported strong revenue growth YoY in almost all international geographies - Latin America (38.2%), North America (47.1%), Europe (13.5%) and rest of world (30.7%). Europe business remained impacted, due to challenges caused by Russia-Ukraine conflict. India revenues were up only 8% YoY, impacted by delay in plantations of key crops.

Steady launch of new products: UPL remains focussed on launching new products by (1) using its own R&D (new insecticides range launched in India) and (2) partnering with other firms (launched a new bio nutrition product in partnership with Christian Hansen). We believe continuous launch of new products will likely drive volume growth for the company.

Management guidance for FY23E: The management revised its guidance to 12-15% revenue growth and 15-18% EBITDA growth in FY23E. While the working capital investments of the company increased during the quarter, due to higher inventories and receivables, the management is confident of maintaining net working capital days at 80 in FY23.